NEW YORK (8/18/18)--The number of Americans failing to pay back their student loans is growing, even as overall delinquencies are in decline, according to a new report.
New data from the Federal Reserve Bank of New York released last week found that 11.5% of student loan borrowers were delinquent on their debt in the second quarter of the year, up from 11.1% in the first quarter.
That 0.4% increase in delinquencies was twice as much as any other form of consumer credit, and comes as student loan debt has emerged as the largest type of non-housing consumer debt.
Delinquencies were defined as payments past due by more than 90 days, and climbed as the overall amount of student loan debt held steady at $1.19 trillion.
The student loan delinquency rate at credit unions currently is 1.06% with net charge-offs of 0.03%, lower than the overall data in the Federal Reserve of New York study.
“My sense is that this low number is consistent with the improving delinquency rate for all loans at credit unions of 0.65%,” Perc Pineda, CUNA senior economist, told News Now. “The disconnect between falling unemployment and rising student loan delinquencies might be alarming. To put this in perspective, it was only last year that unemployment dropped below 6%.
Student loans overtook auto loans and credit card debt as the nation’s largest pile of non-mortgage consumer debt in 2012, according to the Fed study.
The latest data show that even with an economy on the mend, more and more borrowers are finding the debt too much to handle.
Most new entrants in the labor market--students out of college working for the first time--are unlikely to get high-paying jobs initially, Pineda said. “So despite improved economic conditions, there will be a lag in terms of seeing positive results in all sectors of the economy, including take home-pay,” he said.
“Students who are now in the labor market undergo an adjustment process in terms of allocating their financial resources to include debt servicing,” he added. “Those who earned engineering degrees would have high-paying jobs and would be in a better position to pay off student loans. Ideally, we want lower debt-servicing payments overall because that would mean higher consumption and that would have a greater impact on our economy’s output.”
While more borrowers aren’t paying back student loans, the New York Fed found that just 95,000 Americans added a foreclosure to their credit reports, the lowest ever level in the 16-year survey.
Climbing delinquencies in student loan debt came even as overall delinquencies fell in the second quarter to 5.6%, down slightly from 5.7% in the first quarter of the year.